The Adjudicating Authority Need Not Record Any Finding Regarding 'Default' At The Time Of Application Under Section 95 Of The I&B Code: NCLAT
The NCLAT, Principal Bench consisting of Justice Ashok Bhushan (Chairperson), Justice Jarat Kumar Jain (Judicial Member) and Dr. Alok Srivastava (Technical Member) held in the case of Kanchan Nanubhai Desai Personal Guarantor (Anoushka Medicare & Diagnostics Pvt. Ltd.) v. Finequest Financial Solutions Pvt. Ltd, that when an application is filed under Section 95, which is...
The NCLAT, Principal Bench consisting of Justice Ashok Bhushan (Chairperson), Justice Jarat Kumar Jain (Judicial Member) and Dr. Alok Srivastava (Technical Member) held in the case of Kanchan Nanubhai Desai Personal Guarantor (Anoushka Medicare & Diagnostics Pvt. Ltd.) v. Finequest Financial Solutions Pvt. Ltd, that when an application is filed under Section 95, which is an application by the creditor to initiate insolvency resolution process for Individuals and Partnership Firms, the Adjudicating Authority (AA) need not to record any finding regarding 'default' in the order. It has been held that the stage for considering the default would be when the matter is taken up under Section 100 of the Code. Section 100 says that the Adjudicating Authority shall, within fourteen days from the date of submission of the report under section 99 pass an order either admitting or rejecting the application referred to in section 94 or 95, as the case may be.
In the present case, the appeal was arising from an order of the Adjudicating Authority (National Company Law Tribunal), Mumbai Bench. In the application filed under Section 95 of the Code, filed through the Resolution Professional, the Adjudicating Authority recorded a finding regarding 'default' on part of the Personal Guarantor by not fulfilling the debt owed to the Corporate Debtor. The Adjudicating Authority further directed the Resolution Professional to exercise powers under Section 99 of the Code read with the Rules to accept or reject the Application as per the time prescribed in the Section.
The primary contention of the Appellant was that a finding regarding default at a stage when the report has not come from the Resolution Professional would handicap the RP from submitting any negative report. Reliance was placed on the NCLAT judgement in 'Mr.Ravi Ajit Kulkarni vs. State Bank of India'.
Upholding the contention of the Appellant, the NCLAT quoted from the judgment in Mr. Ravi Ajit Kulkarni- "We also find that it was an error on the part of the Adjudicating Authority to observe in Para 10 as reproduced above and hold that there is a "default" when matter was at the stage of acting on the application under Section 95 read with Section 96. According to us, as mentioned, the stage for considering default would arrive when the matter is taken up under Section 100 of IBC."
"At the stage of Section 95 Adjudicating Authority is to act upon the application to take further steps. The stage for "allowing" Application to admit or reject the application would be under Section 100. At the stage of appointment of Resolution Professional, such allowing is not contemplated. In Section 97 no adjudication as such is involved."
The NCLAT, thus, partly allowed the appeal against the order of the Adjudicating Authority, and directed that the observation regarding "default" be deleted from the judgment.
Case Title: Kanchan Nanubhai Desai Personal Guarantor (Anoushka Medicare & Diagnostics Pvt.Ltd.) v. Finequest Financial Solutions Pvt. Ltd.
Citation: Comp. App. (AT) (Ins.) No. 1089 of 2021, Comp. App. (AT) (Ins.) No. 1090 of 202, Comp. App. (AT) (Ins.) No. 1091 of 2021
Counsel for the Appellant: Mr. G. Sai Krishna Kumar, Mr. Prakhar Tandon, Mr. Amrut Joshi, Advocates.
Counsel for the Respondents: Mr. Sunil Fernandes, Mr. Darpan Sachdeva and Mr. Shubham Sharma, Advocates for R1. Mr. Sudha Bhushan, (RP)